August 21, 2014

China’s digital movie service You On Demand Aug. 18 posted a second-quarter (ended June 30) net loss of $793,000 — a marked improvement from a net loss of $3.3 million during the prior-year period, according to a regulatory filing.

The subscription streaming and transactional VOD service, with headquarters in New York and Beijing, has over the years secured high-profile content license agreements with Disney Media Distribution, Paramount Pictures, NBC Universal, Warner Bros., Miramax, Lionsgate and Magnolia, as well as a broad selection of content from Chinese filmmakers.

Yet the service generated just $183,000 in revenue in the second quarter, which was up from $51,000 in revenue during the prior-year period. These are hardly impressive numbers in a Chinese market where more than 700 million people are projected to watch online video content this year.

To help secure better connections in China, You On Demand recently appointed Weicheng Liu as CEO, replacing Shane McMahon, who remains chairman of the board. Marc Urbach is president and CFO of the company.

China remains a burgeoning movie-watching market, with theatrical sales expected to become the largest in the world in a couple of years. Social media sites such as Youku and Tudou have hundreds of millions of unique monthly users, but online digital distribution remains a challenge.

Lionsgate is launching a SVOD service in China this month. The service is a partnership with Alibaba, one of the country’s largest e-commerce sites, and includes the latter’s set-top boxes and connected TVs.

Dubbed “Lionsgate Entertainment World,” the service would also include transactional video-on-demand and electronic sellthrough, featuring the Santa Monica, Calif.-based studio’s catalog of movies and TV shows, including The Hunger Games, Divergent, “Nashville,” Rosemary’s Baby and “Mad Men,” among others.

“It’s another way for us to get content into the Chinese market with a great partner,” Jim Packer, president of worldwide television and digital distribution at Lionsgate, told Bloomberg last month. “We’re always exploring opportunities in China, it’s a growing content market, it’s a content market you have to be in.”

Meanwhile, a 2011 McKinsey & Co. report found that successful online video sites would need to expand their bandwidth; hire experienced online advertising salespeople, and license content that will would generate the largest audiences and advertising.

“The best-funded sites are therefore likely to pull steadily ahead, in what could be a winner-takes-all phase of the market,” analyst Alan Lau wrote.

You On Demand’s fiscal results suggest it will take more than content to lure users.